Lawmakers Clash on Mortgage Bill, Bankruptcy Changes

By CHARLES BABINGTON | Associated Press Writer

WASHINGTON (AP) - Lawmakers clashed on how to deal with the home lending crisis last week, as Senate Republicans blocked a Democratic bid to let bankruptcy courts ease the burden on borrowers who can't make their mortgage payments.

The impasse made it unclear how, when or if Congress will respond to problems that have left thousands of Americans facing foreclosure and eviction from their homes. Many of them are modest-income buyers who made little or no down payment on their houses and took subprime loans that allowed interest rates to rise after a few years.

GOP senators used their filibuster powers to block action on a Democratic-drafted bill that included the bankruptcy provision. The Senate voted 48 to 46 to take up the bill, falling short of the 60 votes needed to proceed.

"The big banks just won again," said Senate Majority Leader Harry Reid, D-Nev.

Republicans said they mainly objected to Reid's refusal to let them offer amendments on a range of issues, such as cutting taxes and limiting lawsuits, long-standing GOP goals. Democrats said the bill should focus tightly on the mortgage situation.

Policy, not procedure, is at the heart of the partisan quarrels. Republican leaders sharply opposed the bankruptcy proposal, which President Bush has vowed to veto if it passes. Democrats said Republicans were too eager to protect lenders who pushed risky loans rather than help the borrowers who accepted the terms.

The housing bill would let bankruptcy judges reduce interest rates and the total owed by troubled borrowers. It would apply only to subprime borrowers - typically those with poor credit ratings - who can prove they can't afford their current payments.

The bill also would provide $4 billion to communities to buy and rehabilitate foreclosed homes. And it would require greater disclosure of subprime mortgage loan provisions in hopes that borrowers won't be surprised by big payment increases.

The Bush administration said the $4 billion is too costly and would amount to a bailout for lenders and speculators who made bad decisions. It said the bankruptcy provision would let borrowers rewrite their contracts, and would prompt lenders to tighten standards and raise interest rates.

Senate Democrats said the bill was a reasonable response to a slumping economy and a lending industry that encouraged middle-income people to buy houses with little money down and with little focus on interest rates that could rise significantly.

"The combination of a sudden loss of income combined with a dramatic increase in the monthly payment is lethal for any homeowner," Reid, the Democratic leader, said this week. "We are not trying to help speculators who lost a bet. We are not trying to bail out lenders who underwrote mortgages that should not have been made. We are not trying to bail out borrowers who should have known better."

But the bill could prevent more than 200,000 foreclosures, Reid said, which "would stabilize the housing market - and prevent future, perhaps deeper losses to families and investors."

Republican senators proposed their own economic solutions Thursday. The wide-ranging plan would provide $15,000 in tax credits over three years for people buying and occupying houses that are in or near foreclosure.

The GOP plan also calls for an array of tax cuts, many of them helping the wealthy. It would limit lawsuits against businesses by people claiming injuries or other damages. Most congressional Democrats oppose such provisions.

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